Press Buries the GAO’s Damning Report on the SEC

Speaking of Moe Tkacik: She points out a General Accountability Office report on the SEC that got woefully underplayed in the press this week—and pulls out some gems.

The GAO reported that former chairman Christopher Cox “created an atmosphere in which enforcement attorneys believed their ability to bring actions against corporate wrongdoers had been weakened,” in the words of the Financial Times. Bloomberg also covered it (as did the AP, Dow Jones, and Reuters). The New York Times and The Wall Street Journal didn’t bother.

They should have. But none of them went through the GAO report and reported on the ineptitude it found. Tkacik (a friend of mine) did and aptly titles her Talking Points Memo post

Scenes From The Ninth Circle Of Financial Bureaucracy

She found that:

The agency got more tips from FINRA — the financial industry’s self-regulator — than it had the resources to pursue… and the staff lacked in-house expertise on pretty much all the fancy financial instruments without which we would not have this crisis (in addition to “government securities” which seems a bit sad, the SEC being a division of the government). The agency’s revenues were in a downward spiral, with corporate penalties falling 39% in fiscal year 2006, only to fall another 48% in 2007, only to fall another 49% last year.

Sounds like a story to me, no? Even the outlets that reported the Cox news didn’t touch most of this stuff, besides the revenue declines.

Is the non-coverage because the press assumes its readers already know the SEC is a basket case? Sure they do. But did they know that the SEC’s lawyers might also be demoralized because they don’t have administrative assistants for basic functions like making copies, assembling storage boxes, and booking flights? Tkacik pulls this from the GAO report:

Investigative attorneys with whom we spoke concurred that having little or no administrative or paralegal support causes them to spend considerable time on non-legal duties such as copying, filing, document-scanning, preparing exhibits, making travel arrangements, soliciting bids for court reporters, and logging and processing documents submitted by respondents. For example, one attorney told us such duties can take 2 to 3 hours daily. Another, who joined the agency from private practice, said that investigative attorneys can spend up to half their time on tasks handled by support staff in their previous position. One attorney told us of plans to spend a day assembling document storage boxes. Because there is insufficient in-house copying capability, confidential documents sometimes are sent to non-secure outside copy shops. Frequent equipment breakdowns mean attorneys must search for working copiers and scanners, a number of attorneys told us.

Or that the agency’s technological capacity is stuck somewhere between ENIAC and the Commodore 64? As Tkacik says:

Once all those internal memos are completed, they have almost no value internally because the system is run on a proprietary case tracking system called CATS that is incompatible with all their other computer systems (which are all incompatible with one another) and which no one bothers to update or fix when it’s broken, both because their old information technology contractors no longer work there and because it is, in the staffers’ own words, “severely limited and virtually unusable.”

And as she points out from the GAO report:

While downloading of information from computer hard drives has become a basic evidentiary technique, some investigative attorneys told us there can be lengthy delays for information technology support staff to retrieve the contents from hard drives obtained during an investigation. For example, one attorney told us about a case in active litigation in which Enforcement had to seek an extension of time for discovery because after 6 months, only two of a number of hard drives had been downloaded…

Some investigative attorneys suggested that Enforcement would benefit from a divisionwide system for sharing information, such as litigation documents or legal analyses…

Several attorneys said that another significant shortcoming is that the investigative staff does not have access to real-time trading information… Currently, when attorneys need such information, they manually query hundreds of broker-dealers, a process that initially produces only incomplete records.

Well, no wonder they’ve failed. Not only did the bureaucrats have to deal with an administration that really didn’t want them doing their jobs, they didn’t really have the ability to do their jobs.

It sounds from the GAO report like like they need to blow up the place and start from scratch.

Whatever, we need some more press coverage of this story.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.

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